The Price of Law: The Case of the Eurozone Collective Action Clauses

Carletti, Elena, Paolo Colla, Mitu G. Gulati and Steven Ongena, Forthcoming, The price of law: The case of the Eurozone Collective Action Clauses, Review of Financial Studies.

Duke Law School Public Law & Legal Theory Series No. 2020-73

51 Pages Posted: 3 Aug 2016 Last revised: 25 Jan 2022

See all articles by Elena Carletti

Elena Carletti

Bocconi University - Department of Finance; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Paolo Colla

Bocconi University - Department of Finance; Bocconi University - BAFFI Center on International Markets, Money, and Regulation

Mitu Gulati

University of Virginia School of Law

Steven Ongena

University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: September 19, 2020

Abstract

We analyze the price effect of the introduction of Collective Action Clauses (CACs) in newly issued sovereign bonds of Eurozone countries as of January 1, 2013. By allowing a majority of creditors to modify payment obligations, such clauses reduce the likelihood of holdouts while facilitating strategic default by the sovereign. We find that CAC bonds trade in the secondary market at lower yields than otherwise similar no-CAC bonds. The yield differential widens in countries with worse ratings and in those with stronger legal systems, especially if of mid-range quality. Hence, CACs are seen as pro- rather than anti-creditor provisions.

Keywords: collective action clauses, sovereign yields, reputation of law

JEL Classification: F33, G12, H63, K12

Suggested Citation

Carletti, Elena and Colla, Paolo and Gulati, Mitu and Ongena, Steven R. G., The Price of Law: The Case of the Eurozone Collective Action Clauses (September 19, 2020). Carletti, Elena, Paolo Colla, Mitu G. Gulati and Steven Ongena, Forthcoming, The price of law: The case of the Eurozone Collective Action Clauses, Review of Financial Studies., Duke Law School Public Law & Legal Theory Series No. 2020-73, Available at SSRN: https://ssrn.com/abstract=2817041 or http://dx.doi.org/10.2139/ssrn.2817041

Elena Carletti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Paolo Colla

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )

Milano, 20136
Italy

Mitu Gulati

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

Steven R. G. Ongena (Contact Author)

University of Zurich - Department Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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